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The 36 Trillion Dollar Roundup

Lazy Man and Money starts the week with Kapitall: Facebook worth 36 Trillion Dollars? It seems the company Kapitall is comparing the return of Microsoft or Walmart over the years, suggesting that $50 invested at IPO would now be worth $18,000 in the case of Microsoft. But – Microsoft’s current Market Cap is about $270B. At IPO time, it was worth less than $1B. The Lazy Man simply did some math, and for Facebook to grow just at Microsoft did, it would have a value of $36 Trillion. Let me add, the total wealth in the world is about $200 Trillion.  Can one company grow to nearly 20% of the entire world’s wealth? I highly doubt it. I think Apple is pushing its luck at over $1/2 Trillion.

From the very frugal Debt Sucks Cheap Scooter Repair With Plasti Dip. I’ve seen that stuff, but never bought a can. It may be time for me to give it a shot, I have a bunch of stuff I’d like plastic-coated.

Paula at Afford Anything asks How Much Money Is “A Lot”? I suppose it’s all relative, but it’s more than we start out thinking.

At Master Your Card, Using Credit Cards to Pay Insurance Premiums: Pros and Cons. Interesting article, but it all comes down to whether you are in the group that pays in full or allows charges to carry month to month and cost you interest. My simple rule? If you don’t have the money to pay in full, don’t buy the item. Insurance should be budgeted and made a top priority.

And to wrap up another great week of reading, at Graduated Learning, Stephanie wrote about Walk for Hunger: My first fitness+fundraising adventure. It was slow going at first, but after a few tweets and my pledging to match donations the first week, Stephanie has passed the $500 pledge level, let’s see  if we can help her hit $1000 by the day of the walk (Sunday May 6th). Good luck, Stephanie!

  • Elle April 29, 2012, 11:22 am

    The Kapitall slide above (borrowed from the Lazy Man and Kapitall sites) is provocative. It compelled me to consider whether I was foolish to emphasize old, large cap companies with a long history of paying an increasing dividend, as opposed to say investing in IPOs such as Facebook.

    With some study, I do not think the slide from Kapitall above, showing PG, WMT, and MSFT’s returns, is reality. Nor does it seem like incentive to go out and buy Facebook or any other IPO.

    First, I think Lazy Man’s blog on Kapitall’s slide is correct about the importance of considering the age of the company at the time of its going public. Reinforcing Lazy Man’s points is this study of 1234 IPOs from 1991 to 1997: http://www.stern.nyu.edu/cons/groups/content/documents/webasset/uat_024338.pdf

    Second, the slide showing PG, WMT, and MSFT’s alleged performance does not take into account PG’s spinoffs over the decades. As Jeremy Siegel has pointed out in his books, these spinoffs add up to a lot. For example, in 2002, PG spunoff Jif and Crisco, selling to Smucker, and PG shareholders received one share of Smucker for every 50 shares of PG. In 2012, PG is supposed to complete a sale of Pringles to Kellogg. Other spinoffs have taken place over the decades.

    Third, for a fair comparison, one must start from the same date. Microsoft was the last of the three corporations (PG, MSFT, WMT) to go public, on or about March 13, 1986. So the chart below starts March 13, 1986. Alternatively, one must start from the IPO date and examine performance over an equal number of years starting from the IPO date.

    Fourth, reinvested dividends are not taken into account. The chart below takes them into account.

    What $50 invested on March 13, 1986 would be worth today if invested in these three companies, taking into account reinvested dividends but disregarding spinoffs:

    PG $1310
    MSFT $19,988
    WMT $1537

    What would $50 invested on January 1, 2000 be worth today (including dividends but not spinoffs)?
    PG $79
    MSFT $35
    WMT $51

    The Kapitall presentation also disregards the general risk of IPOs. From just one of many hits on the subject: “According to the Wall Street Journal, ‘More than half of the U.S.-based companies making their domestic stock-market debuts this year are trading below their offer price.’ ” http://myportfolio.usc.edu/danieleb/2011/09/ipos_worth_the_risk.html

    I might consider a small position in a fund (ETF or mutual) that seeks IPOs, if such a fund exists. But I would want to study this more, first.

    Disclosure: I have yet to be sold on the value of Facebook as a product. I guess as an investor I should celebrate all the advertising Facebook does and hence the revenue Facebook has. But Facebook remains not my cup of tea as far as investing is concerned. It is a product with too much fluff; too many ’empty calories.’ It seems to me people have about as much a need for what Facebook offers as they do, well, high amounts of sugar. At best, Facebook seems like it might be a media tool that might aid bloggers and online news sources in getting information out.

  • Stephanie April 29, 2012, 2:03 pm

    Thank you so much for mentioning the Walk for Hunger! I’m super pumped for next week, and have been really happy seeing the donations start to come in! Hoping to see the donations hit $1000. That would be AMAZING!

    And of course, thank you for your generous matching donation! You really got the ball rolling!

  • JOE April 29, 2012, 3:36 pm

    My pleasure! I hope to see the end of hunger in the US in my lifetime, and for my daughter to see world hunger end in her’s. It’s a great cause, glad I can cheer you on.

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